Elliott Management’s plan for AT&T has given a near-5% boost to the telecommunications giant’s stock. Debt analysts are less impressed.

Credit analysts aired some concerns about some of the activist hedge fund’s ideas on Wednesday. Elliott’s plan puts too much emphasis on share buybacks, two analysts said, though other parts of the plan could help
AT&T
’s credit.

Elliott, which has a $3.2 billion stake in AT&T stock (ticker: T), published a letter to the telecom company’s management on Monday. The hedge fund said the company should streamline operations and consider selling peripheral businesses. (It didn’t clearly specify which, but DirecTV and its Mexican wireless assets have been named as candidates.) AT&T has said it is looking forward “to engaging with Elliott,” and that many of measures outlined by Elliott are already under way.

The fund also said AT&T should formalize a strategy for its free cash flow. Analysts at CreditSights and
Morgan Stanley
said the market would welcome that extra transparency.

But the analysts were less positive about the particulars of the cash strategy that Elliott suggested. The hedge fund said AT&T should devote half of its free cash to buy back stock, and the other half for debt reduction.

While the letter highlights the market’s desire for AT&T to cut down on its debt, it also says now is a “uniquely attractive time to repurchase shares.”

That phrase could “embolden the company to do share buybacks or more than originally planned,” write David Hamburger and Lindsay Tyler, credit strategists at Morgan Stanley.

In addition, Elliott’s plan to cut debt relies a lot on profit growth, according to CreditSights analysts, which means AT&T’s initial pace of debt reduction would be slow and speed up over time. And for now, they are concerned the company will prioritize share buybacks to “appease Elliott.”

If AT&T does sell some businesses, the extra cash could improve its credit profile, particularly if it uses the money to buy back or redeem debt.

But Morgan Stanley’s analysts aren’t convinced those sales will help over the longer run. Some of the company’s non-core businesses generate cash for the company, which means sales could reduce the company’s future cash flow, they wrote.

And they argued that AT&T’s balance sheet might be in worse shape than Elliott describes in its letter.

“We feel that the company’s adjusted debt level is higher than the reported level, due to operating leases and [an] underfunded pension and a few other items,” they wrote. “We are looking for more commentary [from] management on this topic.”

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